Northern Trust NTRS has automated its document capture function in its alternative asset servicing business by rolling out a machine learning-powered capability. This underpins the company’s efforts to digitize alternative asset servicing and enhance asset owner clients’ experience through a multi-year investment.
The digitalized solution will deploy custom-built robotic process automation for the receipt and processing of alternative asset documents, and fund manager reports on holdings and performance of private equity, hedge funds and other alternative assets. This will facilitate the company to streamline workflows and reduce the need for manual intervention.
Moreover, since alternative assets are often valued monthly or quarterly, the automation will offer faster servicing of client assets and enhanced data insight through artificial intelligence.
Per management “as alternative asset classes continue to grow in importance to institutional investors, Northern Trust is committed to driving efficiency and reducing operational risk through the use of emerging technologies.”
Markedly, Northern Trust processes more than 1.5 million alternative asset documents annually, and had more than $1.6 trillion in alternative assets under custody and administration (as of Dec 31, 2020).
In fact, the company plans to capitalize on the emerging technologies to digitize alternative asset servicing. This is likely to support growth of its servicing business.
The company has been focused to tap efficiencies through digitalization. Its innovative technology-driven hedge fund administration capabilities brought to the marketplace via Northern Trust Hedge Fund Services provide an attractive proposition to clients. Further, the implementation of the Target2-Securities strategy to provide better services to its clients is commendable.
However, it is seeing an escalation in costs due to ongoing investments in technology, which has been driving compensation and equipment as well as software expenses. Notably, non-interest expenses witnessed a CAGR of 5.8% over the last five years (2016-2020), with the trend continuing in the first three months of 2021. We believe that an increasing trend in expenses will remain a hindrance to bottom-line growth.
The stock has gained 25.7% over the past six months, underperforming 28.7% growth recorded by the industry it belongs to.
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Northern Trust currently carries a Zacks Rank #3 (Hold).
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